Samsung Says $303 Million Memory Patent Verdict Should Be Erased

Samsung Electronics Co. attacked a $303 million patent verdict, arguing that a late switch in Netlist Inc.'s legal positions unfairly prejudiced it at an East Texas trial in April.

Samsung argued a series of equitable defenses at a bench trial Tuesday presided over by US District Court for the Eastern District of Texas Judge J. Rodney Gilstrap. The South Korean tech giant alleged that Netlist went through almost all of discovery arguing that its four patents covering memory modules used in the computing industry are essential to a standard agreed to by industry participants.

But Netlist pivoted at a pre-trial conference, according to Samsung, which said its trial preparation was disrupted. Samsung further argued that Netlist engaged in improper tactics with regard to two patent applications at the US Patent and Trademark Office and game-playing at the standard-setting Joint Electron Device Engineering Council, or JEDEC.

Netlist countered that Samsung wasn’t put in an unfair position, having argued all along that the patents were “non-essential"—meaning that a manufacturer could produce a standard-compliant memory module without infringing them and Netlist wasn’t obligated to license them on reasonable and non-discriminatory terms.

If successful, Samsung’s arguments would imperil a $303 million verdict that caused a dramatic bump in Netlist’s stock, which has fluctuated with key developments in several patent suits, including one against Google LLC.

Arguments and Responses

“What we have fundamentally is Netlist manipulating the standards process,” said Ruffin Cordell, a partner at Fish & Richardson PC and an attorney for Samsung.

Cordell alleged Netlist joined JEDEC to “monitor the progress of the standard” for the latest memory modules, but that it didn’t disclose several of its since-asserted patents to JEDEC, as is required under the group’s rules, and modified two pending patent applications after a JEDEC standard was set to track the new standard, positioning Netlist to sue fellow-JEDEC member, Samsung.

He said that Netlist’s shift in trial strategy “had a consequence for us, a profound one,” and limited the work of one of Samsung’s expert witnesses, who had put together a report on what Samsung would’ve had to pay to license the Netlist patents.

Netlist’s lead attorney Irell & Manella LLP partner Jason Sheasby, said that the designation of the patents as non-essential was a joint decision by both parties: “everyone made a strategic decision.”

Sheasby said that if the parties kept fighting over whether the patents were standard-essential, Netlist would’ve put on evidence to show that Samsung forfeited its right to a license for Netlist’s patents because Samsung, a Netlist supplier, had previously sought “to destroy this company,” by drastically cutting its access to Samsung products.

“A decision was made, and it was made consciously by two very sophisticated firms,” Sheasby said.

He also disputed that Netlist had hidden its pending patents from fellow JEDEC members. Sheasby argued that Netlist disclosed to JEDEC members the parent patents to those at issue in the case and there was no evidence that the company’s representative at the organization knew about the newer patent applications.

At the close of Tuesday’s bench trial, Gilstrap expressed frustration with both sets of lawyers.

“It’s not lost on me that you made a change of position late, late in the process,” Gilstrap told Sheasby. “That is always suspect to some extent.”

He also chided Samsung’s lawyers for not putting on evidence showing how they were harmed by the switch.

“I haven’t heard very much about the terrible prejudice that was visited on Samsung or how they would’ve tried their case differently,” he said.

Gilstrap didn’t rule from the bench on the defenses, instead instructing both sides to send him cases supporting their positions.

Both parties previously filed briefs on the asserted defenses but those remained sealed as of the date of the bench trial.

Inventor Interest

At one point during the four-hour trial, Samsung sought to highlight the interest of Netlist shareholders in the case, with Cordell asking a Netlist executive if he was aware of any of the investors in the courtroom.

At least one investor drove several hours to the small East Texas city of Marshall for the bench trial.

The man was handed a spare tie by a US Marshals Service employee to meet the dress code requirement for the small East Texas courthouse.

After the trial, he declined a Bloomberg Law request to provide his name or the size of his position in Netlist.

“Enough to do the drive,” he quipped, before walking to his car.

Irell & Manella LLP; McKool Smith PC; and Lee Hong Degerman Kang & Waimey represent Netlist.

Samsung is represented by Fish & Richardson PC; Covington & Burling LLP; and Gillam & Smith LLP.

The case is Netlist, Inc. v. Samsung Elecs. Co., E.D. Tex., 2:21-cv-463, post-trial motions hearing 5/30/23.